Merced County’s top PE investments support portfolio’s quarterly results

The system’s investment in Spark Capital’s third growth fund has earned giant returns over the past few months.

Merced County Employees’ Retirement Association posted just a slight downturn in the quarterly value of its private equity portfolio as strong markups from its largest managers helped it counter the downward slip of valuations reported by other LPs.

The California investor’s private equity portfolio fell by 0.2 percent in the third quarter, according to a presentation made by consultant Meketa at the $991 million system’s board meeting held on November 10. Buyouts watched a webcast of the meeting.

These results were largely driven by returns from its four largest funds, which make up 28.8 percent of Merced County’s private equity portfolio, which has a total valuation of $137.9 million, according to the presentation.

Merced County plan administrator Kristen Santos said that the system relies on private fund consultant Cliffwater for its alternative funds and that the materials its retirement board uses when considering investments are confidential.

Cliffwater did not respond to an email request to discuss Merced County’s fund selection by press time.

Spark Capital Growth Fund III, the system’s largest private equity investment, reported a startling markup of 32.6 percent over the past quarter, along with an annual return of 108.5 percent.

Merced County committed $6 million to Spark Capital Growth Fund III in 2022, according to an earlier presentation. The market value of Merced County’s investment in Spark Capital Growth Fund III is $12.26 million as of September.

Spark Capital Growth Fund III invests in growth-stage companies, according to the Boston-based venture capital manager. The fund had an $800 million target and closed in 2020, according to a filing with the SEC.

Spark Capital recently participated in funding rounds with grocery retail AI provider Afresh, developer platform Superblocks and German engineering platform ELISE.

Other LPs with known commitments to Spark Capital Growth Fund III include Los Angeles City Employees’ Retirement System, Los Angeles Fire & Police Pension System, Massachusetts Pension Reserves Investment Management Board, Orange County Employees Retirement System, Texas County and District Retirement System and the Heinz Endowments.

Spark Capital’s fourth growth fund has a $1.3 billion target. Merced County, Massachusetts Pension Reserves Investment Management Board, Texas County and District Retirement System and Los Angeles City Employees’ Retirement Association all committed to this fund.

Spark Capital did not respond when asked to comment about its success the past quarter.

Merced County’s other top performing funds include mid-market buyouts Cortec Group’s seventh fund with a 7.6 percent quarterly return, lower mid-market buyouts shop Ocean Avenue’s second fund with a 5.3 percent markup and Genstar Capital Partners IX, which reported a markup of 17.4 percent.

Not every fund in Merced County’s portfolio fared so well.

TCV X reported a 26.8 percent markdown for the quarter with a one-year loss of 18.8 percent. Pantheon I and Pantheon II reported quarterly downturns of 11.9 percent and 6.9 percent respectively. Invesco VI reported a 15.4 percent decline.

The presentation did not disclose how much in distributions Merced County received through its private equity portfolio.